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If you were to ask many traders, hedge funds are viewed as overrated, outdated financial vehicles of an era lost to time. Although there are more than 8,000 hedge funds with their doors open in present day, this site looks at the aristocrats of this group, around 525 funds. It is assumed that this group controls the lion’s share of all hedge funds’ total assets, and by monitoring their highest performing equity investments, we’ve discovered a few investment strategies that have historically beaten the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 33 percentage points in 11 months (find the details here).

Equally as key, optimistic insider trading activity is a second way to look at the stock market universe. Obviously, there are plenty of reasons for an executive to cut shares of his or her company, but just one, very clear reason why they would behave bullishly. Many empirical studies have demonstrated the market-beating potential of this tactic if investors know what to do (learn more here).

Hedge fund activity in MSC Industrial Direct Co Inc (NYSE:MSM)

In preparation for the third quarter, a total of 16 of the hedge funds we track held long positions in this stock, a change of 14% from one quarter earlier. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully.

When using filings from the hedgies we track, Robert Joseph Caruso’s Select Equity Group had the most valuable position in MSC Industrial Direct Co Inc (NYSE:MSM), worth close to $157 million, accounting for 2.2% of its total 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which held a $121.2 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism include Ken Fisher’s Fisher Asset Management, Richard Chilton’s Chilton Investment Company and Larry Foley and Paul Farrell’s Bronson Point Partners.

As industrywide interest increased, certain money managers were breaking ground themselves. Select Equity Group, managed by Robert Joseph Caruso, initiated the most valuable position in MSC Industrial Direct Co Inc (NYSE:MSM). Select Equity Group had 157 million invested in the company at the end of the quarter. Chuck Royce’s Royce & Associates also made a $121.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Fisher’s Fisher Asset Management, Richard Chilton’s Chilton Investment Company, and Larry Foley and Paul Farrell’s Bronson Point Partners.

Bullish insider trading is best served when the company in question has experienced transactions within the past half-year. Over the latest half-year time frame, MSC Industrial Direct Co Inc (NYSE:MSM) has experienced zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll check out the relationship between both of these indicators in other stocks similar to MSC Industrial Direct Co Inc (NYSE:MSM). These stocks are Wesco Aircraft Holdings Inc (NYSE:WAIR), W.W. Grainger, Inc. (NYSE:GWW), Applied Industrial Technologies (NYSE:AIT), WESCO International, Inc. (NYSE:WCC), and Airgas, Inc. (NYSE:ARG). This group of stocks are the members of the industrial equipment wholesale industry and their market caps are closest to MSM’s market cap.

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